Abstract

The paper explores the asymmetric relation between public debt and economic growth in 13
EU countries in the period 1993–2013. A panel data model uncovers a linear relation between debt-toGDP
decrease and GDP growth, while the relation between the debt-to-GDP increase and GDP
growth is defined by an inverted U-shaped curve (parabola) with the peak at a 64% debt-to-GDP ratio.
We identified two main patterns in relations between debt-to-GDP and GDP growth: (i.) hysteresis
loop – country data trace the closed circle defined within the debt interval [53%,113%] (Austria,
Finland, Denmark) and (ii.) debt trap – country debt-to-GDP ratio breaks the 113% level and
indebtedness increase followed by the GDP fall is tracing the diverging tail of parabola (debt trap in
Greece, Italy, Portugal)